Over the next few years a substantial number of commercial loans will mature nationwide. "Maturity" means that the outstanding loan balance is due according to the terms of the loan agreement. Simply, the bank wants, no... expects, to paid in full. Failure to do so may result in legal action. It could mean a foreclosure on your building, or a law suit on the promissory note or if one's lucky, a forbearance or "work out" agreement. Such agreements have terms that vary case by case, but the main essence of the agreement is for the bank to ensure it will get its money back.
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In response to bank demands, some business owners will enter into new loan negotiations without the benefit of good counsel. Many because they do not think about it until it's too late, and others because they think they are smart enough to negotiate a new transaction on their own.
Here are five points to consider when negotiating a commercial loan workout with one's bank:
1. Your banker is not your friend.
This seems fairly obvious, but when borrowers are in default, (a matured loan without payback of the loan balance is considered a default) that smiling individual loan officer who arranged the business loan years ago, is either no longer with the bank, or has been relegated to the position of "loan work out officer". In other words, they are merely collector. They represent the bank's interest. Not yours. Do not provide any documentation to your lender that you don't want to be used against you in the future.
2. Never sign anything with the bank that you do not understand.
What may appear to be a simple document or form may contain language and terms in it that can substantially affect your rights. At times, troubled clients have found temporary relief from bank collection efforts by signing a loan extension. What they don't realize is that there is language (usually in small text) that causes them to waive all of their legal defenses against the bank in consideration for an extension of time. It happens a lot. So signing an extension for a mere 90 or 120 days, gives the bank protection against a defense or lawsuit that the borrower may have had prior to endorsing the extension.
3. Gain Leverage.
Unless a business owner is well schooled in lending and banking compliance, then they don't now about the various material compliance errors that may give them leverage against a bank. Professional compliance officers and attorneys take years to learn the regulations. Lending regulations are so expansive that the possibility of sub par loan documentation is high. In my experience, the smaller the lending institution the greater likelihood of errors. (these banks tended to use lawyers to document the loans less frequently). On another note: the banks have their lawyers, so why would anyone negotiate a complicated contract without one?
4. Stop listening to the chatter.
In brief, while a cousin's friend's uncle's brother may have resolved a loan matter, it is highly unlikely that it shares another loan's fact pattern. There are just so many different variables: property types, corporate structures, the respective party's personalities, bank financial positions. Different goals, terms, and objectives. Problematic loans and their fact patterns are unique unto themselves and their solutions usually evolve over time. Listening to "chatter" only creates more confusion and anxiety.
5. Secure the best professional for assistance.
Bank commercial loan work out agents are most often experienced negotiators. They work on problem business loans every day. It's their job. It's what they do best. Otherwise they wouldn't be there. It is not possible for a business owner to maintain a successful business operation and somehow navigate the subtle nuances of negotiating the best strategy and terms for a reasonable forbearance agreement.
Whether you owe five, six or even seven digits, it is worth seeking professional assistance. A real estate broker, former bank loan officer, or a relative, is not the same as a trained and skilled attorney as an expert in this field: just as a residential real estate agent is not the same as a commercial real estate agent. Nor does a bankruptcy attorney have the same skill set as a real estate attorney. Sure there is some overlap, but the point is to seek out a professional who can verify past successes when negotiating with the bank for a reasonable loan work out agreement, and a favorable outcome.
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